Exogenous Demand Research Articles

Feedback–feedforward signal control with exogenous demand estimation in congested urban road networks

To cope with uncertain traffic patterns and traffic models, traffic-responsive signal control strategies in the literature are designed to be robust to these uncertainties. These robust strategies still require sensing infrastructure to implement traffic-responsiveness. In this paper, we take a novel perspective and show that it is possible to use the already necessary sensing infrastructure to estimate the uncertain quantities in real time. Specifically, resorting to the store-and-forward model, we design a novel network-wide traffic-responsive strategy that estimates the occupancy and exogenous demand in each link, i.e., entering (exiting) vehicle flows at the origins (destinations) of the network or within links, in real time. Borrowing from optimal control theory, we design an optimal linear quadratic control scheme, consisting of a linear feedback term, of the occupancy of the road links, and a feedforward component, which accounts for the varying exogenous vehicle load on the network. Thereby, the resulting control scheme is a simple feedback–feedforward controller, which is fed with occupancy and exogenous demand estimates, and is suitable for real-time implementation. Numerical simulations for the urban traffic network of Chania, Greece, show that, for realistic surges in the exogenous demand, the proposed solution significantly outperforms tried-and-tested solutions that ignore the exogenous demand.

Mathematical formulations for the multi-period alternative fuel refueling station location problem with routing under decision-dependent flow dynamics

The refueling station location problem with routing considers vehicles’ ranges and drivers’ preferences about their routes to improve the alternative fuel station infrastructure. Comprehensive planning is necessary for developing a mature infrastructure to overcome budgetary constraints and spatial limitations. Hence, adopting a multi-period planning approach becomes crucial when taking into account the evolving demand for alternative fuel vehicles over time. The evolution of demand can be dependent on exogenous and endogenous factors. Although it is typical to account for exogenous demand growth in multi-period planning, a few studies also take into account an endogenous factor which is the refueling opportunity of drivers on their paths. In this study, in addition to the refueling opportunities, we consider the proximity of each individual station to the flow-based demands. We draw attention to the significance of considering the effects of individual station locations on demand evolution, as these strategic locations can play an important role in reducing the drivers’ range anxiety and increasing their acceptance of the technology. Hence, we introduce a multi-period alternative fuel refueling station location problem with routing under different vehicle flow evolution dynamics that employ various weights for the factors where the natural growth rate is exogenous and the decisions of station locations and flow coverage are endogenous to the problem. We propose three mixed integer linear programming formulations for different evolution dynamics. We carry out computational experiments on the real road networks of Belgium, California, and Turkey and present our findings on the performances of the proposed mathematical models and the gains that can be obtained by considering multi-period planning and incorporating the effects of decisions into the vehicle flow evolution.

How Demand Shocks “Jumpstart” Technological Ecosystems and Commercialization: Evidence from the Global Electric Vehicle Industry

We examine how exogenous demand shocks overcome ecosystem bottlenecks in the commercialization of an emergent technology. We argue that demand shocks that spur new technology adoption by niche users pull “hub” firms into country technology markets, despite ecosystem bottlenecks, thereby serving to “jumpstart” the process of ecosystem development and technology commercialization. By analyzing global electric vehicle markets over the period 2008–2017, we find that extreme weather events such as abnormal heat-related events spur adoption of electric vehicles by end users, thereby propelling automotive or hub firms’ entry into country technology markets, and the subsequent shift of their electric vehicle product portfolios toward the more radical version of the technology. Notably, such demand shocks propel firms’ commercialization strategy, despite ecosystem bottlenecks such as the lack of regulatory and economic inducements for adoption, relative absence of complements, and product market differences. After entry, entrant firms’ electric vehicle product portfolios transition from hybrids toward radical technology products and investments in complements, albeit contingent on their competitive market position in the legacy technology. We discuss the implications of these findings concerning the uptake of demand shocks, and their robustness to modeling choices, technological generations across extended timeframes, potential mediating forces, and boundary conditions owing to firm and country-market heterogeneity. Supplemental Material: The online appendices are available at https://doi.org/10.1287/stsc.2022.0075 .

Airline price responses in the face of demand shocks: European lessons from the COVID-19 pandemic

We exploit the exogenous demand shock in the aviation sector that resulted from the spread of the COVID-19 pandemic to investigate how airlines responded in terms of pricing strategies. By using monthly fare data for flights operated within the EU-27 member states over the period 2017–2022 and by quantifying the intensity of pandemic cycles through a stringency index, we estimate price regressions at the route–airline level. Our findings reveal that the demand drop has prompted lower fares and increased intertemporal price dispersion. Furthermore, we show that fare cuts are not explained by airlines operating fewer flights. By analyzing heterogeneous price responses to the demand shock as determined by various route and airline characteristics, we find a stronger reaction on international markets and greater resilience of low-cost airlines. We also show that the regulations in the form of public service obligations and state aid programs for airlines helped the beneficiaries but not travelers.

Optimal revenue adjustment in the presence of exogenous demand variation

This article examines optimal adjustments to a regulated firm’s revenue when realized revenue diverges from expected revenue due to exogenous variation in demand. The adjustments that are considered include those that arise under two popular forms of incentive regulation — price cap regulation (PCR) and revenue cap regulation (RCR). It is shown that the optimal revenue adjustment reflects the firm’s Lerner Index. The optimal policy differs from both PCR and RCR, but more closely resembles PCR (RCR) when the prevailing fixed charge for the firm’s service is large (small).

Can healthy diets be achieved worldwide in 2050 without farmland expansion?

This paper analyses to what extent it would be possible to ensure food availability to the world population by 2050 with two objectives: healthy diets and no farmland expansion. Assumptions were made to project exogenous demand and supply variables. Climate change impacts on crop yields, grazing use intensities and maximum cultivable areas were taken into account. Cropland and pastureland needs were then estimated for 21 regions using a global biomass balance model. Simulation results established for two sets of crop yield projections (‘moderate’ versus ‘high’ growth) show that several regions (India, Rest of Asia, Near- and Middle-East countries and North Africa, as well as West Africa in the case of ‘moderate’ yield growth) would be constrained by their maximum cultivable areas with no deforestation. Our scenarios would be technically infeasible because of additional pastureland needs notably in sub-Saharan Africa. As a consequence, we analyse to what extent additional levers could reduce pastureland needs in sub-Saharan Africa.

Do Lower Search Costs Benefit Intermediaries?

Intermediaries—such as Amazon, Alibaba Group, and Walmart—play critical roles in digital markets: This paper proposes a model for analyzing how search cost affects their market outcomes. Distinguished from existing search literature, we introduce network effects to the market by allowing buyers to have positive preferences for product variety. In addition, we relax the exogenous demand and supply assumptions in the conventional search literature to study how search affects participation on both sides of the market. Through the model, we focus on studying and comparing two important types of intermediary: the two-sided platform; and the one-sided retailer. We find that reducing search costs does not necessarily increase the profit of both intermediary types. Furthermore, its influences are highly varied—depending on both the type of intermediary and its buyers’ preferences for variety.

Courier Dispatch in On-Demand Delivery

We study a courier dispatching problem in an on-demand delivery system in which customers are sensitive to delay. Specifically, we evaluate the effect of temporal pooling by comparing systems using the dedicated strategy, with which only one order is delivered per trip, versus the pooling strategy, with which a batch of consecutive orders is delivered on each trip. We capture the courier delivery system’s spatial dimension by assuming that, following a Poisson process, demand arises at a uniformly generated point within a service region. With the same objective of revenue maximization, we find that the dispatching strategy depends critically on customers’ patience level, the size of the service region, and whether the firm can endogenize the demand. We obtain concise but informative results with a single courier and assuming that customers’ underlying arrival rate is large enough, meaning a crowded market, such as rush hour delivery. In particular, when the firm has a growth target and needs to achieve an exogenously given demand rate, using the pooling strategy is optimal if the service area is large enough to fully exploit the pooling efficiency in delivery. Otherwise, using the dedicated strategy is optimal. In contrast, if the firm can endogenize the demand rate by varying the delivery fee, using the dedicated strategy is optimal for a large service area. The reason is that it is optimal for the firm to sustain a relatively low demand rate by charging a high fee for a large service radius: within this large area, the pooling strategy leads to a long wait because it takes a long time for multiple orders to accumulate. Moreover, with an exogenous demand rate to meet, customers’ patience level has no impact on the dispatch strategy. However, when the demand rate can be endogenized, the dedicated strategy is preferable if customers are impatient. Furthermore, we extend our model to account for social welfare maximization, a hybrid contingent delivery policy, a general arrival rate that does not have to be large, a nonuniform distribution of orders in the service region, and multiple couriers. We also conduct numerical analysis and simulations to complement our main results and find that most insights in our base model still hold in these extensions and numerical studies. This paper was accepted by Jeannette Song, operations management. Funding: This work was supported by the Natural Sciences and Engineering Research Council of Canada [Grants RGPIN-2015-06757 and RGPIN-2021-04295]. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2023.4858 .

Economic development, female wages and missing female births in Spain, 1900–1930

AbstractFocusing on Spain between 1900 and 1930, a period characterised by significant structural transformations and rapid economic growth, this article shows that the sex ratio at birth (SRB) was abnormally high, at least until the 1920s. Apart from questioning whether female under-registration and different mortality environments alone can explain the results reported here, our analysis of regional information indicates that SRBs were higher in provinces where the economic structure was dominated by agriculture and manufacturing (relative to the service sector). In addition, exploiting the annual variation in low-skilled wages at the province level makes it possible to distinguish between the roles played by under-registration and outright neglect: while higher wages could increase the opportunity cost of registering a female birth (and therefore result in higher SRBs), they could also reduce the pressure to neglect female babies (and therefore result in lower SRBs). We find evidence of both effects (income and opportunity cost) of wages on SRBs between 1914 and 1920 in Spain, a period in which WWI arguably subjected the Spanish economy to an exogenous demand shock. These two effects, however, imply very different discriminatory practices. In fact, on average, the income effect was larger than the effect arising from the opportunity cost, which supports the idea that female neglect around birth was more prevalent than previously assumed during the early twentieth century in Spain. As expected, the relationship between wages and the SRB vanished during the 1920s, along with the unbalanced SRB. These results stress that gender discrimination around birth does not necessarily disappear with economic growth unless this process is accompanied by expanded labour opportunities for women.

AgriLOVE: Agriculture, land-use and technical change in an evolutionary, agent-based model

This paper presents a dynamic agent-based model of land use and agricultural production under environmental boundaries, finite available resources and endogenous technical change. In particular, we model a spatially explicit smallholder farming system populated by boundedly-rational agents competing and innovating to fulfill an exogenous demand for food, while coping with a changing environment shaped by their production choices. Given the strong technological and environmental uncertainty, agents learn and adaptively employ heuristics which guide their decisions on engaging in innovation and imitation activities, hiring workers, acquiring new farms, deforesting virgin areas and abandoning unproductive lands. Such activities in turn impact farm productivity, food production, food prices and land use. We firstly show that the model can replicate key stylized facts of the agricultural sector. We then extensively explore its properties across several scenarios featuring different institutional and behavioral settings. Finally, we simulate the model across different applications considering deforestation and land abandonment; human-induced soil degradation; and climate impacts. AgriLOVE offers a flexible simulation environment to study the endogenous emergence of different agricultural production regimes from the interaction of spatially dispersed farms subject to resource constraints, spatial influence and climate change.

Теории инфляции: ортодоксальные модификации и гетеродоксальная альтернатива

Amid rising global inflation, traditional monetary policies face challenges, prompting a reevaluation of their theoretical foundations and a surge in interest in alternative perspectives. This article examines recent alterations to conventional inflation concepts, questioning the extent of their significance and exploring the potential of heterodox theories as viable contenders. A literature review highlights that within mainstream economics, emphasis has been on the vitality of the Phillips curve, its accurate specification, and broader adjustments to analytical and forecasting frameworks. While models and techniques have grown more sophisticated, the core idea of inflation as a temporary deviation from long-run equilibrium due to exogenous demand shocks remains unchanged. In contrast, heterodox schools present fundamentally different approaches. Post Keynesianism attributes inflation to supply-side factors and distributional conflicts between workers and firms, with institutional features playing a significant role. Latin-American structuralism emphasizes imbalances in peripheral economies. Both theories develop mathematical models that incorporate production and institutional factors, allowing for a wide range of country-specific inflation trajectories. However, they seem to miss universal regularities to some extent. Evolutionary economics and the long-waves theory conceptualize price dyna­mics as manifestations of non-linear self-organization within a complex economic system, borrowing me­thods from the natural sciences. However, despite its obvious potential, this approach is still in the early phases of development. In summary, heterodox schools are in the process of formulating coherent inflation theories that could potentially replace the mainstream paradigm. If they can achieve theoretical and methodological compatibility, these schools may complement each other, providing a more robust foundation for understanding inflation dynamics.

Conversion of quinoa and lupin agro-residues into biochar in the Andes: An experimental study in a pilot-scale auger-type reactor.

In the last decades, the cultivation of quinoa and lupin became an important source of income for Andean farmers due to the demand for high nutrient-density foods from the Global North. The increase in the cultivation intensity caused by this exogenous demand led to the overexploitation of local ecosystems and a decrease in soil fertility. As an alternative to recover and improve soil quality, this work uses a pilot-scale auger pyrolysis reactor, implemented in the Andes, to assess the conversion of the agro residues generated in the post-harvesting processes of quinoa and lupin into biochar for soil amendment. Following the European Biochar Certificate guidelines, the pyrolyzed quinoa stems can be classified as biochar while the pyrolyzed quinoa husks can be classified as pyrogenic carbonaceous material. Both can be used for soil amendment considering their molar ratios (H/Corg, O/Corg) and carbon content. It was not possible to carbonize lupin stems and seedcases. Despite the altitude (2,632m.a.s.l), the CO concentration during the carbonization of quinoa stems and husks were 1,024.4 and 559 mg/Nm3, this last, near the European eco-design standard of 500 mg/Nm3. A subsequent SWOT analysis showed the need to explore low-cost and low-complexity pyrolysis reactors that allow the decentralized conversion of agro residues at the farm-scale. The development of local standards to regulate the production and use of biochar is also essential to grant the safety of the processes, the quality of the products, and mobilize funds that allow implementation at relevant scales.

Impact of Consumer Awareness and Behavior on Business Exits in the Hospitality, Tourism, Entertainment, and Culture Industries under the COVID-19 Pandemic

Empirical studies on small business survival and exits focus on endogenous firms and top manager characteristics, whereas few studies consider exogenous demand shocks and local consumer awareness and behavior, which are especially important for local hospitality industries. Therefore, this study addresses this research gap by targeting the COVID-19 pandemic and anti-contagion policies as a local demand shock for service industries. We empirically investigate the causal effects of changing local consumer awareness and behavior under COVID-19 on business exits at the prefecture-industry level. Based on a panel fixed-effect estimation using a longitudinal dataset of 32 service industries in 47 prefectures over 10 months in Japan, we demonstrate that an increase in consumers’ risk aversion and sympathy for self-restraint from going out, and a decrease in going out with family members, significantly increase the exit ratio in specific service industries in the same prefecture. Moreover, we find that these effects vary by consumer type depending on factors such as gender, age, income level, and household structure.

Analysis of second order properties of production–inventory systems with lost sales

We consider a single-item production–inventory system under a base stock policy for inventory control. We model the system as a closed Gordon–Newell network. The population size of the network is equal to the base stock level, which is the sum of the finished goods and work-in-process inventory. Each exogenous demand, which follows a Poisson process, releases a production order for a new unit and increases the amount of the work-in-process inventory. When there are no items in the finished goods inventory available, arriving demand is lost. The replenishment network operates with state dependent service rates, which we assume to be increasing and concave. First, we analyze the queue length behavior of a two node system and provide conditions under which the mean queue length at the production server is convex in the number of customers in the system. We prove that this leads to convexity of a standard cost function. Using Norton’s theorem, we are able to generalize our results for arbitrarily large production–inventory systems.

Modelling Bottlenecks of Bike-Sharing Travel Using the Distinction between Endogenous and Exogenous Demand: A Case Study in Beijing

This paper aims to investigate the internal mechanisms of bottlenecks in bike-sharing travel. We perform kernel density analysis to obtain analysis points and areas designated by buffer areas. Additionally, we improve the spatial lag model through Tobit regression, so as to avoid the interference of autocorrelation and to set reasonable constraints for dependent variables. The proposed model distinguishes between bike-sharing demand determined by land use and other built environmental factors, which helps to define and identify bottlenecks in bike-sharing travel. Based on a Bayesian network fault tree, we define the diagnosis mode of evidence nodes to calculate the posterior probabilities and to determine the most sensitive factors for bottlenecks. We use Beijing city as the case study. The results show that the most sensitive factors that induce bottlenecks in bike-sharing travel are few subway stations, few bus stops, few bus lines, a low density of bike lanes, and more serious home–work separation. The findings presented here can enhance the generation of bike-sharing trips in response to bike-sharing development and contribute to adjusting the urban structure and reconstructing the green infrastructure layout.

Do FinTech Mortgage Lenders Fill the Credit Gap? Evidence from Natural Disasters

AbstractAfter exogenous demand shocks caused by natural disasters, FinTech lenders are more responsive to increased demand for reconstruction mortgages than traditional banks and non-FinTech shadow banks. Both FinTech and traditional banks increase credit supply, but FinTech supply is more elastic without increases in risk-adjusted interest rates or delinquency rates. Comparing lending supply channels, banks respond to regulatory incentives to lend to damaged areas, whereas FinTech lenders supply more credit when traditional banks rely more on balance sheet financing and physical branch networks. Compared to traditional banks, FinTech lenders increase supply elasticity more aggressively in response to local competitive pressure.

Replenishment Policy with Limited Price Information

In this paper, we seek to provide real-time replenishment policy for a capacitated company that faces an exogenous demand and has to procure and store sufficient quantities of certain items with uncertain procurement prices. The objective is to minimize the total cost of the procuring cost and inventory holding cost without stock out. Motivated by the fact that a large variability in the price process often makes forecasting difficult, in contrast to the traditional approaches of the stochastic inventory theory, we study this problem from the perspective of competitive analysis who is free of any price distribution assumption. We propose an online replenishment model, which generalizes several previous online models. We give a real-time replenishment policy whose decisions are made based entirely on the past and present prices and the current inventory level. We prove that our policy achieves superior performance, and outperforms all of the previous theoretical results. Furthermore, we present the numerical studies to show that our replenishment policy achieves an even better empirical performance.

Does consumer demand pull scientifically novel drug innovation?

AbstractPrior literature shows that stronger consumer demand leads to increased pharmaceutical R&D. However, how strong these “demand‐pull” effects are for more scientifically novel drug innovation remains unknown. We address this question using comprehensive clinical trial data that include precise characterizations of the scientific approaches used in tested molecules. We characterize scientific novelty as the number of times each approach has been used in the past. Exploiting exogenous demand variation introduced by the introduction of Medicare Part D, we find strong evidence that demand‐pull effects are markedly skewed in favor of non‐novel or “follow‐on” drug R&D.

Intensive care unit/step-down unit queuing game with length of stay decisions

In this paper, length of stay (LOS) competition between two servers in tandem without buffer between them is investigated using queuing games. This system typifies the relationship between the intensive care unit (ICU) and the step-down unit (SDU) of a hospital. We model and analyze the equilibrium LOS decision under four different games (one cooperative and three non-cooperative games) as follows: (i) both servers cooperate; (ii) the servers do not cooperate and make decisions simultaneously; (iii) the servers do not cooperate and the first server, the ICU, is the leader (ICU Stackelberg); (iv) the servers do not cooperate and the second server, the SDU, is the leader (SDU Stackelberg). The payoff of the ICU is expressed as the difference between the service benefit and the waiting in queue penalty, while that of the SDU is the difference between the service benefit and the overstay penalty. The results show that LOS decisions of each server depends critically on the payoff function’s form and the exogenous demand. Secondly, with a linear payoff function, the SDU is only beneficial to the system if the unit cost is greater than the unit reward at the ICU. Our results revealed also that payoffs depend on the substitutability in both ICU Stackelberg and SDU Stackelberg games. When most of the LOS is spent at the ICU unit. Our results suggest that the critical care pathway performs better under coordination and or leadership at the ICU level.

Private Finance of Public Infrastructure

Public-private partnerships (PPPs) have emerged as an organizational form to provide public infrastructure. A key characteristic of PPPs is that private investors participate directly in individual infrastructure projects. The advantage of private finance is that it may improve incentives. However, private finance typically neither frees public funds nor enlarges the pool of viable projects.Private finance improves risk allocation if exogenous demand risk is assigned to the public, while endogenous risks are assigned to the private parties (PPPs and financiers), which provides strong incentives for efficiency. When funding for the project relies on user fees, variable term contracts can allocate risks efficiently, in contrast to allocation under fixed term contracts.The exploration of alternative financial contracts that allocate endogenous risks to private parties and determination of the optimal allocation of these risks among borrowers and lenders are potentially fruitful areas for future research. This line of research is probably relevant beyond infrastructure finance.